Scarcity and the Science of Economics Chapter One Scarcity and the Science of Economics

Scarcity and the Science of Economics In your groups……. What is scarcity to you?????? Based on your answer, how do you think scarcity effects the economy?

Scarcity and the Science of Economics What is scarcity…… Basically, the fundamental economic problem –not having enough resources to meet the needs of the people What then is Economics……Study of how we try to satisfy unlimited and competing wants through careful use of relatively scarce resources.

Scarcity and the Science of Economics Needs and Wants What are needs and wants? Needs – Wants –

Scarcity and the Science of Economics Question……. ……….if resources are so limited and everything has a price…..then how are certain things free….BOGO…….etc….. TINSTAAFL

Scarcity and the Science of Economics Three basic questions that must be asked when dealing with scarcity What to produce How to produce For whom to produce What do these mean?

Lesson Two Our Economic Choices Chapter One Lesson Two Our Economic Choices

Our Economic Choices What are Goods? Services Consumers Anything useful and tangible (Can actually touch) i.e. – car, book, clothing, etc. Some goods are intended for final use by us – these are called consumer goods Durable vs. nondurable goods Consumer good Capital good Services Any work that is performed for someone Consumers When we use our goods and services to satisfy our wants and needs.

Our Economic Choices Essential Question: In what ways do people cope with the problem of scarcity?

Our Economic Choices The Choices Producers Make Think of our economy as being made up of two broad groups—producers and consumers. All of these producers have one thing in common: they all use what economists call “factors of production.” Land, Capital, Labor, and Entrepreneurs

Our Economic Choices Land “gifts of nature,” or natural resources not created by people. fixed, or in limited supply.

Our Economic Choices Turn and Talk What can easily affect the prices of limited natural resources such as oil and metals?

Our Economic Choices Capital capital goods result of production. Makes it unique produce goods to produce goods

Our Economic Choices Labor includes all people except a unique group of individuals called entrepreneurs, whom we single out because of their special role in the economy. Quantity and quality birthrates, immigration, famine, war, and disease

Our Economic Choices Entrepreneurs responsible for much of the change and progress in our economy. risk-takers in search of profits driving force in an economy

Our Economic Choices Turn and Talk How does the government of the United States encourage entrepreneurship?

Our Economic Choices Production Possibilities Everything we make requires the four factors of production. Even the service called education uses all four factors of production.

Our Economic Choices Turn and Talk What would happen if one of the four factors of production were missing?

Our Economic Choices Production Possibilities Curve the frontier illustrates all possible combinations of output a diagram that represents various combinations of goods and services an economy can produce when all its resources are efficiently used.

Our Economic Choices Production Possibilities Curve This graph illustrates and explains what economists call the production possibilities curve. Economic Analysis Why can production only take place on or inside the frontier?

Our Economic Choices Cars Clothing

Our Economic Choices Opportunity Cost for Consumers The decision-making grid also shows the opportunity cost of making a decision like buying a computer vs. a used motorcycle What would have to be given up based on your decision?

Opportunity Cost

Our Economic Choices Opportunity Cost for Consumers If Alpha is producing 300 units of clothing represented by point a, and if it then decides to produce the same amount of clothing at point c, what would be the opportunity cost in cars?

Our Economic Choices Turn and Talk In what ways do the actions of the consumer relate to business activities?

Circular Flow of Economic Activity Consumer spending Business income Product Markets Goods/services Businesses Individuals Buy productive resources Four factors of production Payments for resources Factor Markets Income from resources

Circular Flow of Economic Activity Turn and Talk….with a little writing….. Working in your groups, determine the meaning of the circular flow diagram. One person will write down your groups thoughts and comments. In conclusion, you must answer this question: As a consumer, what role do you play in the circular flow of economic activity?

Our Economic Choices What do you think happens when the circular flow becomes larger?? When our nations productivity increases over time we see economic growth What is productivity? The measure of the amount of goods and services produced within a given amount time with a given amount of resources. Only increase though when more can be produced with the same amount of resources.

Our Economic Choices Define Human Capital? The sum of peoples skills, abilities, andlth, knowledge, and motivation Question – How can the government or Business invest in Human Capital? Government – Providing education and healthcare Business – training or other programs that improve the skills of their workers.

Our Economic Choices Division of Labor and Specialization Dividing a task into different parts can cause the task to be completed more efficiently Deciding who can do things better, or specialize, is also more efficient Examples???? Economic Interdependence We are as dependent on other countries as they are on us How can this be good? Gains in productivity and income that result from specialization almost always offset the costs associated with the loss of self-sufficiency.

Lesson Three Using Economic Models Chapter One Lesson Three Using Economic Models

Turn and Talk In what ways do people cope with the concept of scarcity? Think about one thing you want or need but can't have because it is too expensive. a. What steps could businesses take to make this item less costly to produce and therefore more affordable for customers? b. What could you do as a consumer to better afford it?

Using Economic Models Economic Growth occurs when a nation’s total output of goods and services increases over time. important for two reasons. First, because of scarcity, everybody currently wants more goods and services than they have now. Second, if the population is growing, there will be even more people wanting goods and services to satisfy their wants and needs in the future.

Using Economic Models Risks and Sacrifices Not consuming today in order to have the ability to consume tomorrow is not without risk. are businesses making the right investment decisions today to meet consumer demands in the future? Have you picked the right major in college?

Using Economic Models Describing Economic Growth easiest way is to use the production possibilities curve (frontier). Over time, however, changes may cause the production possibilities frontier to expand. The population may grow, the stock of capital may expand, technology may improve, or productivity may increase.

Using Economic Models Increases in Productivity Everyone in a society benefits when scarce resources are used efficiently. Productivity goes up whenever more can be produced with the same amount of resources.

Turn and Talk What would happen if you wasted a few years by living for today without investing for tomorrow?

Using Economic Models Economic Models Economists are concerned with strategies that will help people make good choices. Then, how can simple models help us understand a complex economy? One strategy is to build an economic model, a simplified equation, graph, or figure that shows how something works.

Using Economic Models Economic Models It is also important to realize that models are based on assumptions, or things we think are true. the quality of a model is no better than the assumptions on which it is based Two such models would be the PPC and a Cost Benefit Analysis